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April 30, 2004

Research Firms Blast Rules and Regs

By Gregory Bresiger

Regulation designed to encourage third-party research and protect investors may be having unintended destructive effects. That's according to officials of independent research firms.

"The regulators are acting as though once size fits all. This burden is making it very difficult for firms to startup and stay in business," said Scott Cleland, CEO of the Precursor Group, who's also chairman of the some 75-member Investorside Research Association.

The association's regulatory complaints focus on two areas: the possibility of the curtailment or abolition of soft dollars combined with new mandatory NASD exams. The new Series 86 and 87 research analyst exams became effective the end of March. The requirement of passing an exam is binding on "any associated person who is primarily responsible for the preparation of the substance of a research report on equity securities," according to the NASD.

The regs and exams covering these indy firms include various investment banking rules. Still, some indy officials complain that they don't have any investment banking business.

Independent research firms now number about 300, Cleland says. He says that they derive much of their revenues from soft dollars. Soft dollars are under review in Congress, with one bill calling for its abolition.